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German Chancellor Angela Merkel is inching forward in her quest for a fourth-term coalition, seeking to avert a government crisis as one negotiator warned that a collapse of the talks would risk destabilising Europe.

After suffering losses in September’s election, Ms Merkel’s only realistic hope of securing a fourth term is an awkward three-way conservative-liberal-Green alliance.

But after four weeks of talks, the parties remained far apart as they adjourned for the night on Saturday.

The biggest sticking points are climate change, where the Green Party wants emissions cuts that the other parties see as economically ruinous, and immigration, where Ms Merkel's arch-conservative allies in Bavaria insist on stricter rules.

With the pro-business, tax-cutting Free Democrat liberals freshly returned to parliament after four years in the wilderness, and the Greens out of office for 12 years, neither is keen to give ground. If no agreement is reached, there is a risk of fresh elections being triggered.

Either way, Europe’s biggest economy is headed for uncharted territory. The three factions - nicknamed Jamaica for their respective party colours - haven’t governed together at the national level, and post-World War II Germany has never held a repeat election.

“A failure of the Jamaica talks could produce massive instability in Europe,” Winfried Kretschmann, a Green negotiator who is the premier of economically powerful Baden-Wuerttemberg state, told reporters in Berlin on Saturday. “There’s no way of telling yet what the outcome will be.”

Germany’s election almost eight weeks ago left the country with its most splintered political landscape since the war. Ms Merkel won with her Christian Democrat-led bloc’s lowest share of the vote since 1949, while the anti-establishment Alternative for Germany, which campaigned against the chancellor’s liberal refugee policy, entered parliament with 12.6 per cent of the vote.

Germany’s president, whose post is mostly ceremonial, has urged the parties to reach an agreement.

Negotiators said Saturday that consensus on economic policy, Europe and transportation are within reach. That leaves immigration and cuts in carbon emissions as two major obstacles to be addressed on Sunday.

While billed as exploratory, the talks have been so hard-fought because once the parties agree to start working on a formal coalition pact and cabinet assignments, “there’s no turning back”, Bavarian premier Horst Seehofer, who is negotiating for the Merkel-allied Christian Social Union, told reporters.

Free Democrat leader Christian Lindner said the talks now had to be wrapped up by 5pm local time on Sunday.

But President Frank-Walter Steinmeier, a former foreign minister who now plays an apolitical role, said brinkmanship was to be expected.

"Before the formal talks start, there are always attempts by parties to drive prices up," he told the weekly Welt am Sonntag. "What we've seen in the past weeks isn't so different from previous coalition negotiations."